Why Singapore’s pollution haze may engulf its economy — Part 1

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The smog problem can extend for weeks and significantly hurt Singapore’s economy

After five days, the persistent smog over the city is only getting worse. The problem started due to forest fires in Indonesia (IDX, EIDO), located southwest of Singapore (EWS), less than 100 miles across the Malacca Strait, which separates Singapore and Malaysia (EWM) from Java, Indonesia’s main island.

The persistent smoke has engulfed the city, drastically affecting businesses. Many companies have allowed their employees to work from home, slashing sales in Singapore’s business district. Shopping centers have seen diminished foot traffic, and several resorts have closed temporarily as tourists cancelled plans.

Hit to GDP

Tourism accounts for just over 5% of Singapore’s GDP. If the haze lasts for several weeks, as stated by Singapore’s Prime Minister Lee Hsien Long, the effect on businesses can be significant. The tiny country is essentially composed of a single city, whose tourist attractiveness relies on shopping, convention hosting, and food and entertainment.

Singapore’s northern neighbor, Malaysia, is also likely to be affected. Tourism in Malaysia accounts for 6.4% of its GDP, and the smog’s affecting the country’s many popular beach resorts. This could be just the start of a months-long crisis.